In the past two years since the Insolvency and Bankruptcy Code came into being, 701 companies have been admitted under the corporate insolvency resolution process and around 87 firms are heading for liquidation.

Of the 701 companies admitted under the insolvency proceedings, only 22 resolution plans have been approved and the CIRPs of 525 firms are still under way as of June 2018, according to data from the Insolvency and Bankruptcy Board of India.

The National Company Law Tribunals across the country pushed around 55 companies towards liquidation between April and June 2018, whereas only 32 companies had been ordered for liquidation in FY2018.

According to a recently released report by PricewaterhouseCoopers, CIRP proceedings for 304 were completed within the 180-day deadline, while the process for 185 companies took between 180 and 270 days.

The resolution process of 241 stressed companies went beyond the mandatory 270 days of which 73 firms are going into liquidation.

This raises questions of the effectiveness of the timelines as mandated in the IBC Act of 2016, as experts have stated that companies automatically go into liquidation if the CIRP goes beyond the (extended) 270-day deadline.

“The strict timeline for the resolution process, as mandated by the IBC, is an area that has drawn much attention and it merits further review in order to balance the twin objectives of speedy resolution and maximising recovery for lenders,” said Sanjeev Krishan, partner and leader for the Private Equity and Deals practice at PwC.

A total of 67 cases against stressed companies are in appeal at the National Company Law Appellate Tribunal or are under review, according to IBBI data.

The most recent case of liquidation took place in the last week of July where the NCLT in Mumbai directed the resolution professional appointed for insolvent engineering, procurement and construction company Jyoti Structures to file applications for its liquidation.

The company owes financial lenders Rs80 billion and was admitted under the IBC in early July 2017.

Since the resolution process went well beyond the prescribed 270-day deadline, the tribunal saw it fit that the company be liquidated.

Under existing provisions of the IBC, the first step in the liquidation process of a stressed firm is that the RP has to appoint a liquidator to oversee the sale of company assets, with a public announcement made within five days of the appointment.

The liquidator can sell the company’s assets in specific tranches or in bulk, and all proceeds from the sale of these assets have to be transferred to a newly opened bank account known as “company liquidation” account.

Post liquidation of assets, the NCLT and IBBI will be provided a full report of the liquidation and asset-sale process.

Thereafter, the report will be made a part of the company’s application at the ministry of corporate affairs, for instance, for dissolution of its legal record.

Experts say that under the liquidation process, financial and operational creditors are less likely to recover the full-value of their dues, while employees may not get their full salaries.